It's a grim little statistic-and persistent, too. You know,
the one about nine out of 10 start-ups failing in their first year.
You've heard it, or some variation of it, from experts,
research firms and databases since day one of your business's
inception. Trouble is, those statistics are more than a bit off the
mark. Not that starting a business is easy. But it's not quite
the suicide mission it's been made out to be.

According to Brian Headd, an economist in the SBA's Office of
Advocacy who spearheaded a study on business closures while
working as a Census Bureau researcher, a business closure does not
a failure make. That's an important distinction, says Headd,
whose findings will be published in a forthcoming article in the
journal Small Business Economics. "We're focusing
so much on survival rates, but it's very possible these
businesses had an exit strategy," explains Headd. "If
someone completes that goal, that would be a very positive
outcome."

Using Census Bureau microdata of firms started from 1989 to 1992
and tracked through 1996, Headd found, among other things, that
about half of new employer firms survive beyond four years, and
about one-third of closed businesses were a success at closure.

That finding is what makes Headd's survey unique. The
factors leading to survival-having ample capital and a good
education, for example-were in line with previous research.
What's different is the idea that some entrepreneurs who
shutter their businesses don't fit neatly into the
"failure" category-if they're young and had only a
small initial cash outlay, they retire or they get a job, for
instance. So what gives? The problem, as Headd sees it, is the lack
of a universal methodology that tracks firms over time. "When
I started the study, every other day a reporter would call and ask
where that [nine out of 10] statistic came from," says Headd.
"Myths don't die that easily."

Regardless, it doesn't appear entrepreneurs are taking any
of the available research too seriously. "As people think
about starting a business, they're not so worried about closing
anymore," asserts Headd. "Even if the myth doesn't go
away, I don't know that it matters."

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